I work in the financial services industry. I have for the past year, and if it’s taught me one thing it’s this: government regulation in the space is overwhelming. Regulation is so onerous, it’s catapulting growth in an industry called compliance.
When you start a small business, you’re probably not thinking that you’re going to spend a huge chunk of your time figuring out laws, putting in place procedures to help comply with those laws, attending seminars to ensure you’re up to date on those laws, and auditing/querying your partners to ensure they comply with the laws, too. But that’s the cost of doing business in the financial services space. That’s why banks and financial services companies have full-time compliance directors with full-time minions who are tasked with ensuring their company follows the letter of the law.
Even Cryptsy knows that. Of the three jobs they have posted right now, two of them are for compliance roles. Compliance is king in finance. There’s a raft of rules, after all, that financial services companies have to meet. The average bank needs to comply with all these acts or organizations:
- Dodd–Frank Wall Street Reform and Consumer Protection Act
- Right to Financial Privacy Act
- Bank Secrecy Act
- USA PATRIOT Act
- Truth in Savings Act
- Truth in Lending Act
- Electronic Fund Transfer Act
- Expedited Funds Availability Act
- Regulation D (FRB)
- Equal Credit Opportunity Act
- Fair Debt Collection Practices Act
- Fair Credit Reporting Act
- Unfair or Deceptive Acts or Practices
- Office of Foreign Assets Control
- Consumer Financial Protection Bureau
- Financial Crimes Enforcement Network
While most of the regulations are centered around protecting consumers, a large part of them are also targeted at cutting funding off from terrorist organizations and preventing money laundering. As we know, part of bitcoin’s beauty is its anonymity. That’s also its Achilles heel. The pseudonymous currency makes tracking transactions nearly impossible. That stands in direct conflict with the government’s aim of keeping cash out of the hands of rogues and tax cheats.
So, we’re at something of an impasse. While Ben Bernanke has spoken positively about bitcoin, FinCen isn’t going to be happy permitting anonymous financial transactions. As I see it, there are only two possible solutions:
- The government requires individuals to register bitcoin wallets (or, at the very least, wallets with large balances).
- The government requires financial companies to report currency exchanges above a certain dollar amount (perhaps $10,000) when they involve the USD and bitcoin.
The second option sounds reasonable enough, and it may be the only thing preventing banks and onerous government regulation from destroying bitcoin in the U.S. How else can we reconcile an anonymous currency with the government’s aim of cutting off funding for terrorists, money launderers and tax evaders? I’d love to hear your solutions in the comment section below.
Photo credit: Anel77anel
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disagree
I could not disagree with you more. Bitcoin is a godsend to any government. I am pretty convinced that it was inserted into our lives by a government.
Bitcoin never claimed to be anonymous, just pseudonymous. Many people new to Bitcoin miss the difference completely.
Every bitcoin transaction is listed in a public ledger, and signed with cryptologically strong signatures, guaranteed to not ever change in ways that no court document can. It’s a bureaucrat’s wet dream. There is no denying that a transaction took place, ever.
Now you or I cannot easily link a transaction to a name (although more and more research suggests it’s a lot easier than you may think). A government can very easily subpoena your ISP records and link a transaction to you directly. Google, ISPs, NSA and many other entities active on the Internet can associate transactions with IP addresses and names.
If there ever needs to be a banking holiday, any government can simply stop Bitcoin transactions from happening, by pinching the Internet backbone. Try that with cash.
What government would not want this? It’s a godsend to them. Do you think they can trace cash transactions? I predict that US will adopt Bitcoin widely, although I would guess that anonymizers and projects like ZeroCoin will be made illlegal pretty fast.